Me and my wife have been making Roth IRAs contributions for a number of years. In December of last year my wife started to work again and we figured that her income this year will push our joint income above the $160K cutoff for a Roth contribution. Before I came to that conclusion, however, I made a $1000 contribution to my Roth IRA – which I now think I am not eligible to make. My institution says that they cannot cancel the transaction to make it look like no contribution was made. What will be the consequences of this mistake and is there anything I can do to fix it?

2 comments so far...

Jeffrey Said on March 5th, 2010 at 7:06 pm:

IRS publication 590 answers this. Basically, you will need to pay a 6% excise tax on the excess amount (see 590 to understand exactly what the “excess amount” is).

You should be able to withdraw the excess contribution, as long as you have no earnings (investment gain). If you do have gains, you’re required to withdraw them, as well.

You can apply the excess to a future year, with some provisions.

stlouiscurt Said on March 5th, 2010 at 7:48 pm:

You need to re-characterize the IRA contributions from a Roth IRA to a Traditional post tax IRA. You can do this without any penalties. Talk to whomever handles your Roth IRA and they can help you with the exchange.